Thursday, March 28, 2013

What is a good credit score? Lenders
see the FICO score as an indicator of risk. The higher the score, the odds are
favorable that loan repayment will take place. As the score gets lower, the odds
decrease that payments will be made on time. Right now, most financial
institutions are looking for a FICO score of 740. This is rather high when you
consider the score tops out at around 850. Prior to 2007, lenders were
accepting a 680 FICO score as A- credit. Those who had a 680 then were able to
access good rates and terms for their consumer and home loans. Regrettably, in
the recession, people with a 680 FICO score were facing trouble with adjustable
rate home loans, over-extended credit obligations, and even job losses. Many
people with a good FICO score were obliged to put off payments on credit cards
due to job losses. Many suffered through foreclosures on homes that had
interest rates that adjusted up while the home’s value adjusted downward. As
the economy improves and the job markets get better, we should see the “good”
FICO score come down a bit from 740. Will we see 680 as the “good” score again?
Maybe, but not for awhile.

What is your credit score?
CreditKarma.com is a good site to get your FICO and Consumer Vantage scores for
free. There are a lot of sales offers there, but the score info is worth it.
Knowing your score and checking it at least a few times a year can help you
manage your credit. If your score is low, you can look for ways to improve it
such as paying down debt or settling collections. If your score is good,
continue to utilize practices that maintain it like making all your payments on
time and not acquiring unnecessary credit lines and credit inquiries that might
negatively affect your score.

Often,
a low score could be related to a delinquency, collection, or bad information.
It’s a good idea for someone to view the details of the credit score to
understand the steps they can take to help improve the score.

Do you know what is in your Credit Report?
AnnualCreditReport.com was begun in 2002 when Congress passed the FACT Act. The
Act says the FTC and the three credit bureaus shall provide U.S. consumers with a copy of their
credit report from all three bureaus for no charge on an annual basis. I
recommend everyone access this site every year. I hit it on or about my
birthday to check my report and verify the info on there is accurate and it all
belongs to me. It is a simple identity theft protection tool to which every
American has access. Knowledge is power and understanding your credit report is
one of the most powerful pieces of financial knowledge.

How much do I owe?
This is a no brainer that people should always know. They should know what they
owe in credit debt, meaning any loans and credit cards that are outstanding.
They should also be aware of any Debt Collections they may have. Too many
people have no idea what debts they owe. .

More importantly, I would ask the question:

How long will it take me to pay off my debt?
This is the more relevant question. What resources do you have to pay your
debt? Can you concentrate a greater amount of money on them from your budget to
get them paid sooner? Paying down your debt improves your FICO score. Incurring
high balances or maxing out cards diminishes your score. Paying down these
balances props up your score and shows creditors that you are a “good risk.”

What rates are you paying on outstanding balances?
Lower rates mean you can pay off your debt faster, and save money on interest
payments. You should examine your loan and credit card interest rates
regularly; like the same time you check your credit report. If the report is
good and your score is fine, you may want to consider transferring your card
balances to lower rate cards and cancelling your higher rate cards. Another
option is to contact your card holder and request a lower interest rate.
Closing old cards we have had for years is not always a good option as the
positive history of the card usage helps our FICO score. If they will not lower
your interest rate, as a consumer you have the option of moving your money
should you choose. But keep in mind that some of the low rate offers may only
be introductory. Know what the rate will be after that “intro-rate” expires.

How do inquiries affect my credit?
It is important to know that multiple inquiries from different creditors
can be trouble for your score. Applying for multiple credit cards at once is
not a good idea. Each inquiry will take a few points off your score. It’s not a
lot, maybe 8-14 pts depending on your credit standing and they only last a year
against your score. But, multiple inquiries from various creditors can generate
negative effects your FICO score and then you have to wait for them to drop off
for your score to improve. Multiple inquiries from auto and home lenders in a
short amount of time can be combined into one inquiry. You were not shopping
for five cars at five auto dealers! You were shopping for one car and one loan
at multiple dealers. The same holds true for multiple real estate loan
inquiries while loan shopping. Lesson; know what credit you want to apply for
before applying.

How does cosigning for my kid’s loan affect my
credit? When you cosign a loan it goes on
your credit report as if you were the main responsible party. Do you know why?
It is because you ARE THE MAIN RESPONSIBLE PARTY! You are the one with a
credit score. You are the one with a history of repayment. The entire loan
depends on your child or whomever you co-signed the loan with, making proper
repayments. If they don’t, the financial institution will look to you to make
the loan good. The balances incurred by both parties on the loan will have an
effect on your overall balances owed to creditors as if it were your loan. If
you cosign for a credit card and the balance is used to maximum limit, that
high balance could and most likely will have a negative effect on your FICO
score. If co-signing for a family member or friend, think twice. Parents,
things get better when your children can apply for credit on their own without
your help.

Federally
insured by NCUA. We do business in accordance with the Federal Fair Housing Law
and Equal Credit Opportunity Act.
Copyright 2013 Meriwest Credit Union. All
rights reserved.

Friday, March 15, 2013

This really
depends on how much credit you have to manage at once and what your current
credit score is as it relates to the credit tiers. If you are near the edge of
a tier, than yes, 25 points could affect the interest rate you may have to pay.
If you have only one credit card, it would be difficult to maintain a high
score and utilize more than 30% of the card’s available balance. The 30% rule
is still valid, meaning that to maximize your score you should not utilize more
than 30% of your available consumer lines such as credit cards. As your credit
usage increases above 30% you will likely have a corresponding decline in your
FICO score. That is not to say you cannot ever max out a card. They would not
allow you such high available balances if you could not max them out. But,
before anyone maxes out a card, they should have a plan on repayment. Consider
your budget and manage your money so you can pay a larger amount than the
minimum payment monthly. This will pay the card down faster and help build your
score.

Quick
Example: In Debt Forever

Credit Card
Balance: $2,500

Interest
Rate: 18%

Minimum
Payment: $45

Years to
Pay Off10 (120 payments @ $45 each)

Total
Payments: $5,400

Total
Interest Paid: $2,900

Now you
have actually paid a total of $5,400 on that original $2,500 balance, More than
twice what you originally owed. In this example, a $100 monthly payment at this
rate would pay off the balance in 31 months, 75% faster!

Your credit
report shows your high balance usage on all of your cards. It also indicates
how you have made payments. If there have been any late payments,
delinquencies, etc. Lenders look at this data. It tells us if this person has
the ability to pay off debt or live with it by paying their minimum payments.

Now, let’s
say someone has a car loan, a home loan, and couple of credit cards. They have
installment and revolving credit in their financial portfolio. This person can
utilize a higher level of their credit cards and still maintain a high score
due to the other accounts they have.

FICO looks
at your total credit usage. As you gain experience and manage your credit where
you have no late payments and have maintained credit cards and other credit
given to you, and paid back balances, you will see your score get stronger and
more resilient and less effected by the credit line usage factor.

** *

Credit Myth
in California:
If I get a divorce, I am not responsible for my spouse’s debts.

Credit
FACT: California is a community property state. A spouse can be liable for
debts entered into by the other spouse during the marriage, even if they were
unaware of them. In these community property states, debts entered into during
the marriage are considered community debts, and both spouses can be liable.